Is the Canadian Marijuana Bubble Ready to Burst?

Canadian marijuana companies are now like the internet companies of the dot com era, the industry itself is seeing a boom and investors are rushing to put their money into the listed companies in the marijuana industry. But is it going to be a repeat of the dot com bubble?

“Everyone compares this to the dot-com era; you could throw a dart and hit a winner in cannabis.” Chris Damas, editor of investment newsletter The BCMI Cannabis Report said.

According to an article on CBC, the legal cannabis market is worth about $10 billion already in North America, and projected to grow in the coming year. A report from Arcview Market Research estimates that figure is set to expand to almost $25 billion in three years  and that’s assuming no other U.S. states move to legalize between now and then.

Canada has various advantages in this sector and experts have long said that it would be a hotbed of the rapidly growing industry.

“Canadian licensed producers have a chance to grab first-mover advantage in a worldwide market that U.S. agricultural and pharmaceutical companies could otherwise have been expected to dominate,” Tom Adams, Arcview’s managing director said in the report.

“The U.S. northern neighbour may be the world leader in moving toward a well-regulated legal cannabis industry.” The report said.

There are around 84 public companies that are related to the Cannabis industry that are trading on Canadian stock exchanges. Their collective worth is around $37 billion.

One of the bigger companies among them is Canopy Growth Corp, which made news as Canada’s first billion dollar pot company. Now it is estimated to be worth six times that amount.

[pullquote align=”normal” cite=”Tom Adams, Arcview Market Research”]”Canadian licensed producers have a chance to grab first-mover advantage in a worldwide market that U.S. agricultural and pharmaceutical companies could otherwise have been expected to dominate”[/pullquote]

“We’re in full expansion mode,” Canopy Senior Vice-President and Managing Director Rade Kovacevic told CBC News in an interview. Canopy has added three million square feet of greenhouse capacity this year, and expanded into a number of other provinces.

It is not only the big companies that are seeing good times. The smaller operators too are now booming and expanding at a fast pace.

The weed industry is dominated by four big names: Canopy Growth, Aurora Cannabis, Aphria and MedReleaf. Canopy was at one point well out ahead in front, but Aurora has grown quickly through acquisitions.

Investors have capitalized on the success of pot companies thus pushing up their valuations. The high demand for these stocks means that the activity is so much that stock prices are being pushed up artificially.

Investors are ready to put money into anything cannabis related, at the moment, experts said.

There is indeed real money to be made. When a number of U.S. states legalized the drug in 2016, the windfall was almost immediate. According to Arcview, the 420 licensed dispensaries in Colorado took in $834 million US in revenue last year. That’s almost $2 million per location, the CBC report said.

However analysts have cautioned investors against the downside of a rapid boom. The risk increases considerably when the upside is so rapid. While it is a great time to invest in cannabis stocks, knowing where to stop and when to get out is what can keep investors from escaping the bubble if it bursts.